ECO424 Homework Assignment

Due date: 2/20/2014, Thursday, in class

Name: ______

Ch5 HW

1. Prove that the rate of output that equates MSB with MSC is efficient in the static sense.

2. What happens to the statically efficient rate of output when there is a technical change in the mode of production such as new satellite-based resource exploration techniques? What happens to the statically efficient rate of output when there is population growth? (Hint: These changes will shift either MWTP curve or MC curve. To which direction?) 3. A small community has discovered a mineral deposit within its borders. How can the community make its extraction sustainable?

4. When production uses a non-renewable resource input, sustainability is feasible if production function has the form of the Cobb-Douglas function, i.e., with , given enough K, and . Q devotes the amount of output, K is the amount of capital, and R is the amount of the non-renewable resource. (1) Draw the graph for , with .

(2) Explain why sustainability is feasible given enough K, and .

(3) Mathematically prove that , with , has constant returns to scale (CRS).

Ch6 HW 1. Show that when external benefits (i.e., a positive consumption externality) are involved, market output and price tend to be too low relative to socially efficient levels.

2. Roads (except for toll roads) are typically open-access. If rents in this case are defined as the total net gain in travel time saved by using a particular road, then in what sense are the rents dissipated?